Consumers say they unknowingly add to debt while trying to get relief

St. Louis, MISSOURI (InvestigateTV) - 40 million Americans now owe roughly $1.5 trillion in student loan debt. One in five of those borrowers is behind on payments. But instead of getting help, some troubled borrowers say they were tricked into taking out even more loans at sky-high interest rates.

Sara Carril sits at her dining room table in front stacks of papers. It’s her mountain of student loan debt. “Definitely frustrating!” she said with exasperation.

When she graduated from Southern Illinois University in Edwardsville seven years ago, she owed around $63,000 in student loans. It's now $81,000 and growing, despite paying on time for five years.

“So, basically I'm paying off interest, and I'm not making a dent,” Carril said. This St. Louis wife and mom is now working three jobs to make her payments: Gymnastics instructor, part-time bartender, and two-day-a-week art teacher. She said she’s more than frustrated: “Scared. Like I'm never going to get there.”

When she got a phone call from a company called Student Advocates, telling her she may qualify for student loan debt relief, she jumped at the chance.

“They told me they wanted to see if I qualify for debt relief, and they asked me some questions. They said I didn’t qualify for their debt relief, but what they did tell me that they could do for me initially is to get me on an income-based repayment plan,” Carril said.

She told them she wasn’t interested because she already has a plan through her student loan lender.

“After I wasn’t interested in that they decided to tell me they would refinance my loan and pay off my current student loan. I would owe another company for the rest of the amount, and it would lower my payment per month also,” Carril said. “I thought I was getting my loan refinanced. And if that would have happened, that would have been a good deal and I would have happily paid for it. But nothing happened.”

She said she paid an extra $39 a month for nearly two years, thinking it was making a difference. It was not. "Nothing. they did nothing for me,”

She was actually adding to her debt, owing a third-party company called Equitable Acceptance Corporation $39.50 a month. "They don’t even realize that they’re working with Equitable Acceptance until it shows up on their credit report as this $1,300 line of credit,” said Brad Wolverton, who writes for NerdWallet’s investigative team and first reported this story.

"The consumer in this case doesn't even realize it's called income based repayment. They're just told hey we can help you reduce your payments,” Wolverton said.

He exposed that Equitable Acceptance, a Minnesota-based company handling these third party loans, is currently under investigation by the Federal Trade Commission.

"What’s off is that the consumer is actually paying not toward their student loans. They’re paying this third-party financier. So, none of the money that they think is going toward their student loans is actually going to that,” Wolverton said.

Three months after NerdWallet’s reporting, the New York Attorney General’s Office filed a lawsuit against Equitable and 9 other companies alleging “deceptive”, “fraudulent” and “unlawful conduct."

Equitable Acceptance denies the allegations. The company is also a defendant in a potential class action lawsuit in New York. The plaintiff’s attorney in that case alleges Equitable Acceptance and more than 40 other companies engaged in a “coordinated scheme targeting student borrowers to sell them fraudulent services that push the borrowers into even greater debt while diverting their money into their pockets.”

The problem here, said Wolverton, is the service often provided is actually free through the U.S. Department of Education. It’s called income-driven repayment. The programs can lower your monthly payment on federal student loans - but it is a free service. It is illegal in many states for debt relief companies to charge upfront fees.

In an email, Equitable Acceptance told InvestigateTV it cannot comment on pending litigation “other than to say we intend to defend vigorously against all such claims.”

Equitable Acceptance declined to discuss pending lawsuits. The attorney's full statement is at the bottom of this story.

The company’s general counsel, Daniel Hill, went on to state in a lengthy email: “It is misleading to state the enrollment process is free, without also adding how difficult the process is.”

Complaints are still pouring in across the country. The Better Business Bureau’s flagged the company, giving it an F rating, noting 206 complaints in the last three years.

“The complaints have not subsided. People are really mad because this is sitting on their credit report, and it’s harming their credit,” Wolverton said.

InvestigateTV pulled complaints in Ohio and Virginia. In one complaint, a woman named Rebecca Sherman wrote, “this equitable assistance company is getting 50 bucks a month from me for what??”

Equitable Acceptance told InvestigateTV it knows of one Virginian who is paying roughly $200 per month less on his federal student loan debt because he hired a third party to help him enroll into a Department of Education program.

To see examples of some of the complaints against Equitable Acceptance, click on the points on the map below. You can read about the Ohio-based complaints, how much money is in dispute in each claim, and how much money, if any, was recovered.

"I had a loan for nothing. They did nothing for me and I was really frustrated, and that's when I stopped paying,” Carril said.

As a result, her credit took a dive. She eventually got the loan with Equitable Acceptance removed from her credit report. But now the original company she signed up with, Student Advocates, is sending her messages.

"Nothing is free. If someone’s calling you saying that they can help you, don’t believe them,” Carril said.

If you have an issue with any contract you’re in, you may want to consult an attorney. You can also file a complaint with your state's attorney general, the Better Business Bureau and Consumer Financial Protection Bureau.

InvestigateTV reached out to Students Advocates by email for comment about Carill’s situation and has not heard back.

Thank you for reaching out to me. We appreciate the opportunity to be heard. Unfortunately, the reporting on this area has been anything so far but fair and accurate. We are thus understandably skeptical about further media contacts.

With respect to any pending litigation, we cannot comment other than to say we intend to defend vigorously against all such claims.

With respect more generally though to the federal student loan payment assistance programs offered through the US Department of Education, there is a great deal of misinformation being reported. By way of example:

1. The phrase debt relief is being bandied about incorrectly. Debt relief is a legal term of art that refers essentially to negotiating a settlement of someone's debt. Applying for enrollment into a federal student loan payment assistance program is nothing like that. The DOE has payment assistance programs available to federal student loan debtors. Debtors either qualify for a program or not. There is no negotiation or settlement. The distinction is legally significant. Describing this process as involving debt relief - as you do below - is thus inaccurate.

2. Suggesting that loan forgiveness is not available to federal student loan debtors is simply incorrect. For example, there exists the Public Service Loan Forgiveness program that was enacted in 2007. US Representative Sheila Jackson-Lee of Texas summarized the program as follows: "[P]ublic servants will receive complete loan forgiveness after 10 years of service. This will assist our driven young people who want to serve their country in the military, law enforcement, or as first-responders, fire fighters, nurses, public defenders, prosecutors, and early childhood educators. It ensures that dedicated Americans will not be precluded from serving their country because of a preponderance of debt." There are also other similar programs available through the DOE that are income based, and can result in loan forgiveness after 20 years. Loan forgiveness is thus available. Anyone suggesting otherwise is just wrong.

3. It is true that consumers can try to apply for enrollment into the DOE programs for free, and without paying anyone a fee to help them. However, the National Consumer Law Center concluded in a 2013 study that the process of applying for enrollment presents consumers with an "impenetrable bureaucracy." It is thus misleading to state the enrollment process is free, without also adding how difficult the process is. To access the rights and benefits available to them then, many consumers need help. There are a number of similar services available to consumers about which few, if any, complain. For instance, people can prepare and file their income tax returns on their own for free. That process can be difficult though so many (roughly 80 million Americans) choose instead to pay for someone to help them. The same can be said of financial advisors. People are free to invest their savings on their own. It is often though more efficient and effective to hire someone to help.

4. Paying for someone to help a student loan debtor get enrolled into a DOE program can also be beneficial. There are thousands of examples of student loan debtors who benefit from being enrolled into a DOE program. Many of those same people reside in Virginia, if you take time to ferret out their stories. One such Virginian I am aware of is paying roughly $200 per month less on his federal student loan debt because he hired a third party to help him enroll into a DOE program. That equates to a cash flow savings for that one Virginian of approximately $2400 per year. If that Virginian paid, for example, $1300 for someone to help him get enrolled into a DOE program, his monthly cash flow savings more than paid for that help in well under one year. In a Public Service Loan Forgiveness program, a debtor can also have his or her loans forgiven in 10 years - instead of paying for those loans over 30 years. In an income driven repayment program, the loans can be forgiven in 20 years - or 10 years less than if they were not enrolled.